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A make-believe economic world

The transition from the rhetoric of securing billions of dollars from the looters and the diaspora to the reality of the IMF has been quicker than one had thought. The new government’s economic strategy is more or less the same as perfected by the much maligned Ishaq Dar

A make-believe economic world
Prime Minister Khan is in China to shore up reserves and projects in social sector and agriculture.

As I write these lines, Prime Minister Imran Khan is leaving for China. He has already been to Saudi Arabia twice. The next port of call is Malaysia. He may have to visit some European capitals soon after.

What is going on here? A leader who won many hearts and minds by promising to break the begging bowl has had to eat humble pie. It is true that he took over the reins of government at a time when the external deficit of the country had become dangerously high. However, at 5.8 per cent of GDP, the deficit in 2017-18 is far less than its historic high. That peak of 8.2 per cent of GDP was witnessed in 2007-08, with a massive balance of payments crisis. Oil price was twice the level today. Other imports were high mainly due to consumer items. GDP growth was decelerating. Then, too, a new prime minister had been handed down the mess. What’s the difference this time?

There were more make-believes than one could comfortably stomach. First, the $200 billion question. An important theme of Imran Khan’s public discourse was that the recovery of the enormous amount of the wealth stashed abroad by the corrupt political elite would be brought back to pay off the mounting external debt. In 2014, the now President of Pakistan tabled an Assembly question. Better believe it, it was the PML-N government which placed an estimate of $200 billion on the stolen money in response to this question. It also informed the house that the Swiss government was being approached to recover the money.

On May 18, 2014, I had done a piece in these columns, “$200 billion manna from Swiss banks”. I had maintained that the “figure of $200 billion is not based on any research done by the Ministry of Finance, nor investigations conducted by the FBR, State Bank of Pakistan, NAB, FIA or an independent researcher. This is what an ex-foreign minister of Switzerland, Micheline Calmy-Rey, is reported to have claimed.” It was no more than a ploy used by the then finance minister, whose love for debt accumulation far exceeded his effort to tax the rich and the powerful. Now in government, the concerned cabinet members talk about it with tongue in cheek.

The second make-believe was the great faith in the Pakistani diaspora abroad. Give them an environment of transparency, incentives and confidence, and they would supplement, if not supplant, the aid donors and foreign investors. Giving them the right to vote would make them active stakeholders in our economy and polity.

Remittances from overseas Pakistanis already form a major pillar of the current account balance. Indeed, the remittance inflows now exceed the export receipts. In the July-September period of the current fiscal year, exports were valued at $5,156 million against the remittances of $5,419.51 million. Depreciating rupee and better growth in the world economy had a positive impact on both. In addition, the remittances gained from the rising oil prices. The high remittances growth of 13.1 per cent compared to just 1.1 per cent in the corresponding quarter of the previous fiscal year shows that there was more to it than the economic developments. It was a vote of confidence in Imran Khan who has a history of fund-raising without a parallel in Pakistan.

There was far less interest, however, in voting in the recent by-elections, even after allowing for the first-time hiccups. It seems sending money is easier than casting vote. Even more difficult will be to attract FDI from diaspora. The Pakistani diaspora is different from the Chinese diaspora, which was more into businesses. In the decades of 1990s and 2000s when China became the workshop of the world, nearly half of the FDI was contributed by its diaspora.

The Pakistani diaspora is more into professions and blue collar work. They have set up a few hospitals, universities, school systems and some SMEs. They are not likely to become big time FDI contributors anytime soon. Estimates of their wealth are as good as the $200 billion worth of ill-gotten money abroad. That is not to say they do not have surplus cash. A well thought out and targeted diaspora bond may yield some result. But the idea that the country will be awash with diaspora dollars has not passed the reality check in government.

The first two make-believes were conditions precedent for the third make-believe — the promise of never returning to the IMF. The transition from the rhetoric of securing billions of dollars from the looters and plunderers and the diaspora to the reality of the IMF has been quicker than one had thought.

In our peculiar context, nothing more is desirable for long term sustainability of development than to live without the IMF. It is not an unrealisable dream. Its realisation requires policy makers to look inwards to design a pro-poor austerity programme, a rational combination of export promotion and import substitution strategies, taxing the rich and the untaxed, and effective governance to ensure rule of law and promote productivity. Donors and those holding their agency can have no interest in this programme of standing on our own feet.

A whole month of hibernation by the finance minister created the impression that the he was dotting the I’s and cross the T’s of such a programme. Little did one know that these past two years the Team PTI had been talking more than thinking things out. Their wild ideas were shredded to pieces by the more experienced bureaucracy. What came out at the end was what bureaucracy knows best — MORE OF THE SAME.

Come to think of it, the economic strategy is more or less the same as practiced and perfected by the much maligned Ishaq Dar. Prime Minister Imran Khan says he has no choice but to go to the IMF to repay its past loan contracted by the imprudent previous government. So did Ishaq Dar.

The prime minister went to Saudi Arabia and returned with a heart-warming package of $3 billion addition to official reserves, a three-year facility of deferred oil payments and promises of some projects. With nuclear sanctions in place, the PM-N government had secured an oil facility that lasted much longer, converted eventually into grant and was kept hidden from the donors. In its last tenure, the same government was able to get a pure grant of $1.5 billion.

The prime minister is now in China. Hopefully, he will get $2-3 billion to shore up reserves and projects in social sector and agriculture. Need one repeat who signed on the game-changing CPEC. Going to Malaysia for edible oil facility and the UAE for investments is new, but firmly in the Ishaq Dar genre.

With most Ishaq Dar elements in place, the results cannot be different. During the IMF programme, he successfully avoided structural reform. After the programme, he went on a spending spree to buy an electoral victory. But for corrective measures taken by Prime Minister Abbasi, Dar would have left a greater mess. What would Prime Minister Imran Khan leave for the next government? There is still time to rethink. Use the room provided by friends to deal with the financial emergency, but avoid the IMF and undertake home-grown reform. Let the next government also be his!

Dr Pervez Tahir

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